What is Credit Card Interchange Fee
Interchange fee is a term used in the payment card industry to describe a fee paid between banks for the acceptance of card based transactions. Usually it is a fee that a merchant’s bank (the “acquiring bank”) pays a customer’s bank (the “issuing bank”) however there are instances where the interchange fee is paid from the issuer to acquirer, 
often called reverse interchange.
In a credit card or debit card transaction, the card-issuing bank in a payment transaction deducts the interchange fee from the amount it pays the acquiring bank that handles a credit or debit card transaction for a merchant. The acquiring bank then pays the merchant the amount of the transaction minus both the interchange fee and an additional, usually smaller fee for the acquiring bank or ISO, which is often referred to as a discount rate, an add-on rate, or passthru.
For cash withdrawal transactions at ATMs, however, the fees are paid by the card-issuing bank to the acquiring bank (for the maintenance of the machine).
These fees are set by the credit card networks, and are the largest component of the various fees that most merchants pay for the privilege of accepting credit cards, representing 75% to 85% of these fees by some estimates, although larger merchants typically pay less as a percentage. Interchange fees have a complex pricing structure, which is based on the card brand, regions or jurisdictions, the type of credit or debit card, the type and size of the accepting merchant, and the type of transaction (e.g. online, in-store, phone order, whether the card is present for the transaction, etc.). Further complicating the rate schedules, interchange fees are typically a flat fee plus a percentage of the total purchase price (including taxes). In the United States, the fee averages approximately 2% of transaction value.
Credit Card Interchange on Rewards Cards
As much as consumers love their reward credit cards, many merchants hate them.
Whenever you swipe a credit card, merchants get dinged for a interchange fee. And guess what? Those interchange fees go, in part, toward your credit cards rewards.
Credit card rewards contribute to the costs associated with card processing. And because merchants can’t typically add a credit card surcharge, many charge higher prices than would otherwise be necessary.
Yes, merchants can mitigate these expenses by refusing credit cards entirely, or by choosing which cards they’ll accept. Indeed, the fact that American Express isn’t as widely accepted as other card types is primarily due to their higher costs.
